SDL yields fall 43 bps on hopes of rate cut by RBI

Yields on state development loans (SDLs) have fallen considerably with the lowest yield on a 10-year paper hitting as low as 8.08% compared to 8.51% in the previous auction.

SDLs worth Rs 7,680 crore were auctioned on Tuesday where the yields varied between 8.08% and 8.10%, the Reserve Bank of India (RBI) said in a press release.

West Bengal raised the maximum amount of Rs 2,500 crore via 10-year paper at 8.10%. Both Rajasthan and Andhra Pradesh raised Rs 1,500 crore each at a coupon rate of 8.09%.

In the previous auction, the lowest yield on a 10-year SDL stood at 8.51% where as the highest offered yield stood at 8.60%.

Market participants indicate that the CPI inflation number which was released earlier this month has provided momentum to rate cut expectations.

“Some market participants are even expecting a 50 basis points cut which may be difficult. However, a 25 basis points cut is widely anticipated which is reflected in the SDL yields,” a bond market participant indicated.

Moreover, with the Federal Reserve deciding to hold rates, foreign investor appetite for Indian bonds is also expected to continue. As a result, SDL yields are now trending at a spread of 58 basis points over the ten-year benchmark yield which is hovering at 7.50%.